Department of Justice

This is the weirdest “bubble” I have seen. 

The MF Global Trustee has just released their preliminary report on the progress in uncovering where the vaporized cash went. Bloomberg notes:

• MF GLOBAL DIDN'T ALWAYS RECORD CASH MOVEMENTS, TRUSTEE SAYS
• TRUSTEE SAYS MF HAD SHORTFALL IN COMMODITIES FUNDS START OCT 26
• MF BROKERAGE TRUSTEE TRACED $105 BLN IN CASH MOVEMENT
• MF COMPUTERS COULDN'T TRACK VOLUME IN FINAL DAYS, TRUSTEE SAYS

Of course, we know that MF Global is the only company to not follow Fiduciary Principles 101 (client cash commingling) but also Accounting 101 (T square, debits, credits, and all that boring and apparently irrelevant in a time of uber-kleptocracy, stuff) leaving us wondering just how much of that unrecorded cash may be found in unrecorded suitcases in unrecorded bank vaults.

Watch out for the Rhino. 

Was the Chapter 11 Petition of MF Global Holdings filed fraudulently?

Listen to the Landlord in Chief lay out his REO to LBO plan live and in stereo. Since everyone will end up paying for it, directly or indirectly, sooner or later it probably is relevant.

The CDS index market remains one of the most liquid sources of hedges and positioning available (despite occasional waxing and waning in volumes) and is often used by us as indications of relative flows and sophisticated investor risk appetite. However, as Kamakura Corporation has so diligently quantified, the broad CDS market (specifically including single-names) remains massively concentrated. This concentration, evidenced by the Honolulu-based credit guru's findings that three institutions: JPMorgan Chase, Bank of America, and Citibank National Association, have market shares in excess of 19% each has shown little to no reduction (i.e. the market remains as closed as ever) and they warn that this dramatically increases the probability of collusion and monopoly pricing power. We have long argued that the CDS market is valuable (and outright bans are non-sensical and will end badly) as it offers a more liquid (than bonds) market to express a view or more simply hedge efficiently. However, we do feel strongly that CDS (indices especially) should be exchange traded (more straightforward than ever given standardization, electronic trading increases, and clearing) and perhaps Kamakura's work here will be enough to force regulators and the DoJ to finally turn over the rock (as they did in Libor and Muni markets) and do what should have been done in late 2008 when the banks had little to no chips to bargain with on keeping their high margin CDS trading desks in house (though the exchanges would also obviously have to step up to the plate unlike in 2008).

One big happy family ...

When it comes to corruption, cronyism and general muppetry in Washington D.C., the only real question is 'where does one start?' Yet one has to start somewhere to conclude with a list of the ten most corrupt and despicable marionettes in D.C. Which is precisely what JudicialWatch has done in its annual compilation of the "Top 10 Most Corrupt Politicians in Washington D.C." for 2011. And confirming what everyone knows, that both the left and right are merely irrelevant names for the same general social affliction, or should we call it by its true name - wealth pillage - the split is even between democrats and republicans. In no particular order, the winners of 2011 are...

We should be ecstatic that the Department of Justice is finally prosecuting fraud, right?

Unfortunately, it's just a p.r. stunt going after small fish and leaving the big criminals untouched ...

"We must work tirelessly to reduce the incidence of financial fraud in order to restore trust and confidence in the financial markets. A task force investigation and taking appropriate Federal actions in these matters will contribute to these goals."

Sincerely Christopher J. Dodd Chairman

It is easy to forget that the United States Government and its citizens have distinctly different relationships with the law. While citizens and corporations look at statutes to see what they are prohibited from doing, governments must look to statutes to see what they are specifically authorized to do. In effect, the United States must ask for permission rather than beg for forgiveness when undertaking action. As one might imagine, this has a very particular effect on how the lawyers that work for the general counsel's office of various government agencies and departments go about doing their job.